CMU Trends: Five Steps

Trends: Top Five American Copyright Quirks

By | Published on Monday 18 June 2018

When you review copyright law around the world you very quickly notice how the rules and principles of copyright vary from country to country. You also quickly notice that there are a number of specific quirks in American copyright law that set it apart from other copyright regimes, and especially the copyright regimes in other key music markets.

There is currently a major piece of legislation working its way through Congress in the US which aims to deal with a number of these quirks, bringing US copyright law more in line with the rest of the world, and especially Europe. Though it doesn’t deal with all the quirks by any means, despite that legislation being spun as a major once-in-a-lifetime overhaul of copyright law.

At this year’s MIDEM – ahead of a discussion about that legislation – CMU Insights presented The Top Five US Copyright Quirks. Here CMU Trends runs through each of these in more detail and considers which the current legislative proposals deal with.

QUIRK ONE: PERFORMING RIGHTS ON SOUND RECORDINGS
Copyright is all about control. The reason you want to own a copyright is that it gives you control over whatever it is that you own the copyright in.

That means you have control over what happens to your copyright work, which in the context of music will either be a song or a recording, or both. It also means you can exploit these controls for profit and generate revenue from your copyright, earning off the time, money and energy you invested in creating your work.

Most copyright systems provide a list of specific controls that come with the copyright. Under UK law there are six main controls: the reproduction control, the distribution control, the rental control, the adaptation control, the performance control and the communication control. The latter can be split into two: the traditional communication control – that mainly covers broadcast and some webcasting – and the making available control, which covers more interactive online delivery of content.

The exact list of controls and the terminology used varies from country to country, though something like this list is found under most copyright systems, whether explicitly or implicitly. Meanwhile, in the music industry, we often group the reproduction and distribution controls together and call them the ‘reproduction’ or ‘mechanical’ rights, and we often group the performance and communication controls together and call them the ‘performing’ or ‘neighbouring’ rights.

However, the US is an exception when it comes to performing rights. The song copyright does come with performing rights inline with copyright systems elsewhere, but the sound recording copyright does not.

What this means in practical terms is that AM and FM radio stations – which in other countries pay royalties to artists and record labels, as well as songwriters and music publishers – only pay royalties to the latter in the US. American radio stations pay no royalties at all to artists and labels, because artist and labels have no performing rights to enforce against those broadcasters.

There is, however, a digital performance right for sound recordings in the US, which was added to copyright law in the 1990s. This means that online and satellite radio stations do have to pay royalties to artists and labels, because artists and labels have a digital performance right to enforce. Which creates the slightly odd situation where one set of radio stations pays royalties and another set does not, the royalty obligation being linked to how the station broadcasts.

When it comes to the digital performance right for sound recordings in the US, there is a so called ‘compulsory licence’. This means that artists and labels are obliged to license online and satellite radio stations at standard royalty rates set by a thing called the Copyright Royalty Board. Where broadcasters utilise this compulsory licence, royalties are collected and distributed by collecting society Sound Exchange.

QUIRK TWO: 1972
For reasons of history, when it comes to sound recordings in the America, US-wide federal copyright only protects records released since 1972. That was the year when sound recordings were added to federal copyright law. Any records released before 1972 that are still in copyright get their protection from state-level laws.

Day-to-day this doesn’t tend to make much difference, except that the digital performance right we just discussed originates in federal copyright law.

This means that many of the online and satellite radio stations obligated to pay royalties to artists and labels under that rule have argued that that obligation only applies to recordings released since 1972. When they play golden oldies from the 1950s and the 1960s, no such royalties are due, they reckon.

Working out whether the artists and labels behind pre-1972 recordings should also get royalties from online and satellite radio stations has required consulting state-level laws, which don’t tend to say anything specific about online and satellite radio at all.

However, state laws are often pretty ambiguous about whether or not sound recordings should come with more general performing rights. Artists and labels have never enforced rights of this kind on pre-1972 catalogue – ie by demanding royalties from AM/FM radio stations – though that doesn’t necessarily mean those rights aren’t there.

After all, for much of the 20th century artists and labels were generally focused on making money from the copying of their recordings, and didn’t think much about their performing rights. Even elsewhere in the world – where sound recordings definitely enjoy general performing rights – the income those rights generated were generally seen as a periphery revenue stream until the end of the 1990s CD boom.

With the ambiguities around what state law says about performing rights for pre-1972 sound recordings, the record industry and artist community had to go legal to get judicial clarification. A number of lawsuits were filed in various states.

Judges in California reckoned that there was a performing right under their state laws. But judges in Florida said that wasn’t the case under their state copyright regime. Judges in New York, meanwhile, initially said yes there were performing rights, but then on appeal ruled otherwise, although mainly because no such rights had ever been enforced.

This process has been time consuming and messy, and risks setting a precedent where royalties are due in some states but not others. That isn’t a satisfactory conclusion when online and satellite radio stations are available country-wide.

QUIRK THREE: MECHANICAL RIGHTS
Moving on to song rights now, let’s talk about the licensing of mechanical rights – so remember, that’s the reproduction and distribution controls combined.

Licensing song rights can be complicated for various reasons, not least because many songs are co-written and therefore co-owned by multiple songwriters and/or music publishers. Licensees usually need specific permission from each and every co-owner, which can be a lot of work if you are making use of lots of co-owned songs.

This is why collective licensing is so common when it comes to song rights. Collecting societies offer licensees one-stop blanket licences covering large repertoires of songs (and, through reciprocal agreements with other societies, something nearing a global repertoire). The licensee then provides data and payment to the society, which works out which specific copyright owners need to be paid for any songs that have been used.

In most countries there are collecting societies covering both the performing and mechanical rights in songs. In many counties the same society actually administrates both, though when it comes to Anglo-American repertoire – so UK, Ireland, Canada, Australia and New Zealand – there are generally separate societies in each country for performing rights and mechanical rights, though they may work closely together.

In the US there is no collecting society for mechanicals, and therefore no one-stop blanket licence covering mechanical rights. There is a compulsory licence covering mechanicals – meaning standard royalty rates are set by the aforementioned Copyright Royalty Board – but licensees must identify individual copyright owners for each song they use and ensure the paperwork and royalties required by the compulsory licence are sent to those rights owners.

In the physical age, it was record companies who needed licences to exploit mechanical rights, because whenever they pressed and sold records they exploited the reproduction and distribution controls of the songs contained within the recordings. Most American labels outsourced the admin associated with the compulsory licence for mechanicals to external agencies, of which the biggest was the Harry Fox Agency.

When streaming came along, it was decided that a stream exploits both the mechanical and performing rights in songs. The latter could be licensed via the collecting societies – BMI, ASCAP, SESAC and GMR – but for the former the streaming services would need to go through the same administration process as the labels. Except, unlike the labels, they didn’t need to sort out the mechanical rights on a few new albums each week. They needed to sort out the mechanical rights on tens of millions of tracks from the off.

The streaming services hired the same agencies as the labels. However, those agencies often couldn’t cope with the challenge of sorting out the mechanical rights on such a large quantity of music. As a result, many songs on the streaming platforms went unlicensed. This being America, the owners of some of those songs sued the streaming services for copyright infringement.

For their part, the streaming services insist they are happy to pay any mechanical royalties due to songwriters and publishers, pointing out that they do exactly that in every other country, using the collective licensing system wherever no direct deals with publishers are in place. The issue in the US – they say – is that the system for paying mechanical royalties isn’t fit for purpose, because of the lack of a collecting society and blanket licence. Which, as we say, is yet another quirk of American copyright.

QUIRK FOUR: CONSENT DECREES
We have mentioned collective licensing at various points already. This is where pretty much all the rights owners put all their rights into one pot and appoint a central organisation – called a collecting society or collective management organisation or CMO – to negotiate licensing deals, and collect and distribute resulting royalties.

In most countries there will be at least one collecting society representing recording rights and another representing song rights. As already mentioned, on the song rights side there may be separate societies for performing and mechanical rights. There may also be separate societies for artists and labels on the recordings side. In some countries there are multiple societies representing the same category of rights owners. The rights owners must choose a society to join and licensees may need multiple licences.

Copyright law generally approves of collective licensing – and sometimes forces it via a compulsory licence – because licensing this way makes things simpler for both rights owners and licensees. However, competition law doesn’t like collective licensing, because collecting societies often enjoy a near monopoly over all songs or all recordings within their home territories.

To that end, collecting societies are regulated to overcome competition law concerns. The extend of that regulation varies greatly from country to country. In the US, the two main song right collecting societies – BMI and ASCAP – are regulated via consent decrees, agreements they reached with the US Department Of Justice decades ago.

It is generally agreed that the consent decrees result in BMI and ASCAP being among the most regulated collecting societies in the world.

Despite the fact that – unlike most other song right CMOs – BMI and ASCAP have no exclusive rights over their members’ work. American writers and publishers can do direct deals covering their performing rights if both they and a licensee wish to do so. Whereas in most other countries songwriters assign (at least) their performing rights to their society, which then has the exclusive rights to license.

This means you have the slightly bizarre situation that BMI and ASCAP are among the least powerful collecting societies in the world, yet are the most regulated.

Music publishers and songwriters have long argued that the consent decrees are no longer fit for purpose and should be rewritten. Or, indeed, a totally new way of regulating collective licensing in the US should be found. But a recent DoJ review of the consent decrees declined to instigate any such overhaul.

QUIRK FIVE: ROYALTY BOARD AND RATE COURTS
We’ve already mentioned that when it comes to the royalties paid under the compulsory licences that cover digital performance rights on sound recordings and mechanical rights on songs, that the Copyright Royalty Board decides what licencees must pay. That’s a panel of judges who hear arguments from all sides and then set a rate.

Meanwhile, under the aforementioned consent decrees, BMI and ASCAP licences are subject to rate court intervention. In those scenarios, once again a judge intervenes, hears arguments from all sides and then sets a rate.

The intervention of statutory bodies or copyright courts in some licensing scenarios is not unique to the US, but the music industry has long argued that the Royalty Board and rate courts in America frequently set royalties at below the market value of the songs or recordings being exploited.

That, it is argued, is because of the criteria employed by the Royalty Board and rate courts when considered what royalties should be paid.

THE MUSIC MODERNIZATION ACT
The American music industry has been lobbying hard in recent years to deal with all five of these copyright quirks.

The proposed Fair Play Fair Pay Act seeks to allow US artists and labels to claim royalties from AM and FM radio stations. The proposed CLASSICS Act seeks to extend the digital performance right to all sound recordings still in copyright, oblivious of release date. And the Music Modernization Act seeks to establish a society and blanket licence for the mechanical rights in songs in the US for the first time.

Meanwhile, songwriters and music publishers have been campaigning for consent decree reform, and both the Fair Play Fair Pay Act and Music Modernization Act include provisions to overhaul how the Royalty Board and rate courts set royalty rates.

Earlier this year, in an unprecedented coming together of organisations representing the entire music community – including artists, songwriters, labels and publishers – a number of these proposals were pulled together under one banner, also referred to as the Music Modernization Act.

This is the legislation that is now working its way through Congress. With bi-partisan support, the involvement of the entire music community and – crucially – the backing of the streaming sector, the combo version of the MMA was quickly passed by the House Of Representatives. Senate is giving it all more scrutiny, but the music industry remains confident that the package will be green lighted later this year.

If passed in its current form, the combo MMA will extend the digital performance right to all recordings, establish a society and blanket licence for mechanical rights, and reform the criteria employed by the Copyright Royalty Board and rate courts. Which will make it an impressive package of reform that will deliver tangible benefits to the wider music community and the streaming sector.

It won’t result in AM/FM radio stations paying royalties to artists and labels though. Given the strength of the broadcasting lobby in Washington, which strongly opposes such moves, that is seen as a more ambitious task, and therefore including it in the MMA would likely have scuppered the whole package. However, even as the MMA continues to go through the motions, the US record industry will continue to fight for wider performing rights for sound recordings Stateside.

Meanwhile, the songwriters and music publishers will also continue to push for consent decree reform, hoping to overhaul the way BMI and ASCAP are regulated in one way or another.

Of course, from a European perspective, these aren’t all the quirks of American copyright law: copyright registration and statutory damages would be next on the list. But these are the five quirks that are causing the biggest issues for the American music community – and any artist, label, songwriter or publisher whose music is consumed in the US.

Therefore, the MMA is definitely one to watch. And, assuming it goes through, further attention will then be needed on radio royalties and consent decree reform.



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